Skip to main content

Full text of "Missouri Senate Committee Substitute Senate Bill 207 ISRS Rate Analysis Explanation"

See other formats


KEVIN D. GUNN 
Chairman 



Commissioners 




WESS A. HENDERSON 
Director of Administration 
and Regulatory Policy 



TERRY M. JARRETT 



Missouri Public Service Commission 



SHELLEY BRUEGGEMANN 
Acting Secretary/General Counsel 



ROBERT S. KENNEY 



CHERLYN D. VOSS 
Director of Regulatory Review 



WILLIAM P. KENNEY 



STEPHEN M. STOLL 



POST OFFICE BOX 360 
JEFFERSON CITY MISSOURI 65102 
573-751-3234 
573-751-1847 (Fax Number) 
http://www.psc.mo.gov 



February 25, 2013 



The Honorable Mike Kehoe 
Missouri Senate 
State Capitol, Room 220 
Jefferson City, MO 65101 

Dear Senator Kehoe: 

Attached you will find the Missouri Public Service Commission Staff's analysis of the likely 
annual rate impact of that portion of SCS SB 207 that allows for periodic ISRS rate adjustments 
for Missouri electric utilities. The Commission Staff used the SCS SB 207 as the applicable 
language governing operation of an electric ISRS in this state. In developing these estimates, to 
the extent possible the Commission Staff worked with the electric utilities to ensure that the 
calculations were based upon reasonable assumptions. Separate rate impact analyses have been 
prepared for Ameren Missouri (Ameren), The Empire District Electric Company (Empire), 
Kansas City Power & Light Company (KCPL), KCPL - Greater Missouri Operations/MPS 
District (GMO - MPS), and KCPL - Greater Missouri Operations/SJLP District (GMO - SJLP). 
The latter three entities are all affiliates of Great Plains Energy (GPE) offering electric service to 
Missouri customers using different approved rate schedules. 

In your letter of February 19 th , you asked the Missouri Commission to analyze the annual impact 
of implementing ISRS rate increases for each electric utility based upon an assumption that each 
utility will place in service $700 million of ISRS eligible infrastructure investments annually. 
While Ameren has verified that this amount is a reasonable assumption for its annual ISRS 
eligible plant additions, GPE and Empire believe that the figure of $700 million overstates to a 
significant degree the amount of annual ISRS additions that they would be expected to be placed 
in service in the future. Accordingly, these companies provided what they believe to be 
reasonable estimates of their approximate expected annual ISRS plant additions, and the 
Commission Staff utilized them for purposes of the attached calculations ($215 million in annual 
ISRS plant additions for KCPL, $ 122.5 million for GMO - MPS, $40 million for GMO - SJLP, 



Informed Consumers, Quality Utility Services, and a Dedicated Organization for Missourians in the 21st Century 



Senator Kehoe 
Page 2 



$85 million for Empire). We would be happy to provide you these same rate impact analyses 
using different assumptions as to the volume of annual ISRS plant additions if you desire. 

The calculations attached to this letter indicate that the estimated amount of annual ISRS revenue 
requirement for Ameren is approximately $40 million, for Empire approximately $5 million, for 
KCPL approximately $12.5, for GMO - MPS approximately $7.5, and for GMO - SJLP 
approximately $2.5. These amounts are estimates only, and do not constitute any sort of 
prediction of what the ISRS rate impact will be in any given year, or in the first year of an ISRS. 
Because the amount of annual ISRS investments by utility will be affected by many variables 
over time, in any given year it can be expected that the actual amount of ISRS eligible plant rate 
increases may be significantly greater or less than the amount of the estimated annual rate 
increase calculated for by the Commission Staff for each electric utility. 

We have attached a sheet to this letter that provides a more detailed explanation of how the ISRS 
revenue requirement amounts were derived for each Missouri electric utility. 

This analysis only considered the rate impact of the sections of SCS SB 207 pertaining to ISRS 
increase applications. We have not attempted to examine here the potential customer rate impact 
of other sections of the legislation in general rate proceedings, primarily 393.1215. 

Please do not hesitate to contact me if you have questions or concerns on the attached 
calculations, or if you need additional analysis of this subject matter performed. 



Sincerely, 




Kevin D. Gunn 
Chairman 



Informed Consumers, Quality Utility Services, and a Dedicated Organization for Missourians in the 21st Century 



SCS SB 207 ISRS Rate Analysis Explanation 

Per the terms of Senate Bill 207, Senate Committee Substitute, the costs an electric utility would be 
allowed to recover through ISRS rate filings would be a return on net ISRS "rate base," factored up for 
income taxes, as well as depreciation expense calculated on net ISRS plant additions. 

Each Missouri electric utility provided the Commission Staff a net ISRS rate base amount for purposes of 
this analysis. ISRS rate base is the amount of annual average plant in service additions projected by each 
utility eligible for ISRS rate recovery (i.e., excluding generating plant additions, "new business," etc.), less 
the projected annual growth in a utility's accumulated depreciation reserve and accumulated deferred 
income tax reserve. The utility's projected ADIT amounts assume that "bonus depreciation" tax benefits 
now available to electric utilities will not be available to them on an ongoing basis in the future. 

Then, the next step in the ISRS rate calculation is application of a "rate of return" to the net ISRS rate 
base amount. For Ameren Missouri and the GPE utilities, the Commission Staff used the current rate of 
return values ordered for these entities by the Commission in their recent rate increase applications. 
For Empire District Electric, because its current rate proceeding has been resolved through a stipulation 
and agreement entered into by the parties to that proceeding, it is not expected that the Commission 
will authorize a specific rate of return for Empire. Therefore, consistent with the terms of SB 207, the 
Commission Staff has relied upon a rate of return value calculated as an average of the rate of return 
recommendations from those parties that actively participated in the rate of return issue in Empire's 
current rate case. 

The required rate of return on net ISRS rate base is then adjusted for income tax impacts in the 
following manner. First, the equity portion of a utility's return on ISRS net plant investment "factored 
up" for income taxes in that the equity return amount is not generally deductible for federal and state 
income tax purposes. Second, the ISRS revenue requirement is reduced by an interest expense tax 
deduction calculation that recognizes that any interest expense associated with debt investment made 
to finance ISRS plant additions would be currently deductible for income tax purposes. 
The other component of the ISRS revenue requirement, ISRS depreciation expense, is calculated by 
applying a depreciation rate to the estimated amount of net annual ISRS plant investment, that is, gross 
ISRS plant additions less estimated annual plant retirements. For purposes of this calculation, the 
Commission Staff applied each utility's overall composite depreciation rate authorized by the 
Commission in its most recent rate application. 

The analysis outlines two rate design scenarios for each investor owned electric utility. The two 
scenarios are: 

1. Weighted Customer Charge Allocation Method - ISRS charge based on weighted customer charge 
per class. 

2. Revenue Allocation Method - ISRS charge based on annual revenue per class. 



February 25, 2013 



Kansas City Power & Light Company 
Annual SCS SB 207 ISRS Revenue Requirement 



Line 

1 Total ISRS Rate Base 

2 Current Rate of Return 

3 Pre-Tax Required ISRS Return (Line l X Line 2) 

4 Income Tax Conversion Factor 

5 Revenue Req. Before Interest Deduction (Line 3 x Line 4) 

6 Total ISRS Rate Base 

7 Current Weighted Cost of Debt 

8 ISRS Interest Deduction (Line 6 x Line 7) 

9 Effective Income Tax Rate 

10 Income Tax Deduction Due to Interest (Line 8 x Line 9) 

11 Income Tax Conversion Factor 

12 Revenue Requirement Impact of Interest Deduction 

(Line 10 X Line 11) 

13 Total Revenue Requirement on ISRS Rate Base 
(Line 5 -Line 12) 

14 Annual ISRS Depreciation Net of Retirements 

15 Annual Property Taxes 

16 SB207 ISRS REVENUE REQUIREMENT 

(Line 13 + Line 14) 

(1) Amount Provided by Utility 

(2) From Order in Case No. ER-2012-0174 

(3) Per SB 207 Bill Text, No Recovery of Property 
Taxes Through ISRS 

(4) Plant Balances Provided by Utility; Depreciation 
Rate from Case No. ER-2012-0174 



$ 
$ 



57,780,000 (1) 
0.081240 (2) 
4,694,047 

1.6231 (2) 
7,618,908 
57,780,000 
0.03029 (2) 
1,750,156 
0.3839 (2) 
671,885 
1.6231 (2) 
1,090,536 

6,528,372 

5,940,000 (4) 

- (3) 
12,468,372 



KCPL Greater Missouri Operations - SJLP Division 
Annual SCS SB 207 ISRS Revenue Requirement 



Line 

1 Total ISRS Rate Base 

2 Current Rate of Return 

3 Pre-Tax Required ISRS Return (Line l X Line 2) 

4 Income Tax Conversion Factor 

5 Revenue Req. Before Interest Deduction (Line 3 x Line 4) 

6 Total ISRS Rate Base 

7 Current Weighted Cost of Debt 

8 ISRS Interest Deduction (Line 6 x Line 7) 

9 Effective Income Tax Rate 

10 Income Tax Deduction Due to Interest (Line 8 x Line 9) 

11 Income Tax Conversion Factor 

12 Revenue Requirement Impact of Interest Deduction 

(Line 10 X Line 11) 

13 Total Revenue Requirement on ISRS Rate Base 
(Line 5 -Line 12) 

14 Annual ISRS Depreciation Net of Retirements 

15 Annual Property Taxes 

16 SB207 ISRS REVENUE REQUIREMENT 

(Line 13 + Line 14) 

(1) Amount Provided by Utility 

(2) From Order in Case No. ER-2012-0175 

(3) Per SB 207 Bill Text, No Recovery of Property 
Taxes Through ISRS 

(4) Plant Balances Provided by Utility; Depreciation 
Rate from Case No. ER-2012-0175 



$ 
$ 



8,820,000 (1) 
0.081240 (2) 
716,537 
1.6231 (2) 
1,163,011 
8,820,000 
0.03029 (2) 
267,158 

0.3839 (2) 
102,562 

1.6231 (2) 
166,468 

996,543 

1,470,000 (4) 

- (3) 
2,466,543 



KCPL Greater Missouri Operations - MPS Division 
Annual SCS SB 207 ISRS Revenue Requirement 



Line 

1 Total ISRS Rate Base 

2 Current Rate of Return 

3 Pre-Tax Required ISRS Return (Line l X Line 2) 

4 Income Tax Conversion Factor 

5 Revenue Req. Before Interest Deduction (Line 3 x Line 4) 

6 Total ISRS Rate Base 

7 Current Weighted Cost of Debt 

8 ISRS Interest Deduction (Line 6 x Line 7) 

9 Effective Income Tax Rate 

10 Income Tax Deduction Due to Interest (Line 8 x Line 9) 

11 Income Tax Conversion Factor 

12 Revenue Requirement Impact of Interest Deduction 

(Line 10 X Line 11) 

13 Total Revenue Requirement on ISRS Rate Base 
(Line 5 -Line 12) 

14 Annual ISRS Depreciation Net of Retirements 

15 Annual Property Taxes 

16 SB207 ISRS REVENUE REQUIREMENT 

(Line 13 + Line 14) 

(1) Amount Provided by Utility 

(2) From Order in Case No. ER-2012-0175 

(3) Per SB 207 Bill Text, No Recovery of Property 
Taxes Through ISRS 

(4) Plant Balances Provided by Utility; Depreciation 
Rate from Case No. ER-2012-0175 



$ 26,460,000 (1) 

0.081240 (2) 
$ 2,149,610 

1.6231 (2) 
$ 3,489,033 
$ 26,460,000 

0.03029 (2) 
$ 801,473 

0.3839 (2) 
$ 307,686 

1.6231 (2) 
$ 499,405 

$ 2,989,628 

$ 4,410,000 (4) 

- (3) 
$ 7,399,628 



The Empire District Electric Company 
Annual SCS SB 207 ISRS Revenue Requirement 



Line 

1 Total ISRS Rate Base 

2 Current Rate of Return 

3 Pre-Tax Required ISRS Return (Line l X Line 2) 

4 Income Tax Conversion Factor 

5 Revenue Req. Before Interest Deduction (Line 3 x Line 4) 

6 Total ISRS Rate Base 

7 Current Weighted Cost of Debt 

8 ISRS Interest Deduction (Line 6 x Line 7) 

9 Effective Income Tax Rate 

10 Income Tax Deduction Due to Interest (Line 8 x Line 9) 

11 Income Tax Conversion Factor 

12 Revenue Requirement Impact of Interest Deduction 

(Line 10 X Line 11) 

13 Total Revenue Requirement on ISRS Rate Base 
(Line 5 -Line 12) 

14 Annual ISRS Depreciation Net of Retirements 

15 Annual Property Taxes 

16 SB207 ISRS REVENUE REQUIREMENT 

(Line 13 + Line 14) 



23,900,000 (1) 



7.912% (2) 



1,890,968 



1.623076249 (2) 



3,069,185 



23,900,000 



2.9480% (2) 



704,572 



38.3886% (2) 



270,475 



1.623076249 (2) 



439,002 

2,630,183 

2,472,000 (4) 
- (3) 



5,102,183 



(1) Amount Provided by Utility 

(2) From Case No. ER-2012-0345 

(3) Per SB 207 Bill Text, No Recovery of Property 
Taxes Through ISRS 

(4) Plant Balances Provided by Utility; Depreciation 
Rate from Case No. ER-2012-0345 



Ameren Missouri 
Annual SCS SB 207 ISRS Revenue Requirement 



Line 

1 Total ISRS Rate Base 

2 Current Rate of Return 

3 Pre-Tax Required ISRS Return (Line l X Line 2) 

4 Income Tax Conversion Factor 

5 Revenue Req. Before Interest Deduction (Line 3 x Line 4) 

6 Total ISRS Rate Base 

7 Current Weighted Cost of Debt 

8 ISRS Interest Deduction (Line 6 x Line 7) 

9 Effective Income Tax Rate 

10 Income Tax Deduction Due to Interest (Line 8 x Line 9) 

11 Income Tax Conversion Factor 

12 Revenue Requirement Impact of Interest Deduction 

(Line 10 X Line 11) 

13 Total Revenue Requirement on ISRS Rate Base 
(Line 5 -Line 12) 

14 Annual ISRS Depreciation Net of Retirements 

15 Annual Property Taxes 

16 SB207 ISRS REVENUE REQUIREMENT 

(Line 13 + Line 14) 

(1) Amount Provided by Utility 

(2) From Order in Case No. ER-2012-0166 

(3) Per SB 207 Bill Text, No Recovery of Property 
Taxes Through ISRS 

(4) Plant Balances Provided by Utility; Depreciation 
Rate from Case No. ER-2012-0166 



$ 216,100,000 (1) 
0.079121 (2) 
$ 17,098,048 

1.61609 (2) 
$ 27,631,985 
$ 216,100,000 

0.027424 (2) 
$ 5,926,326 

0.3812223 (2) 
$ 2,259,248 

1.61609 (2) 
$ 3,651,148 

$ 23,980,837 

$ 15,800,400 (4) 

- (3) 
$ 39,781,237